Market round-up: 26 – 30 November 2018

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in November 2018.

Brexit negotiations

Last weekend was the easy bit; now comes the real Brexit work. Theresa May’s Brussels success may have been a step in the right direction but her Brexit deal comes laden with potentially destructive domestic caveats, namely parliamentary scrutiny when MPs come to vote on the deal in two weeks.

Stock markets update

Caution was still the watch word on Monday, despite stock markets rallying on both sides of the channel. The more globally exposed FTSE 100 gained 1.2% with domestically focussed mid-caps adding around 1%. Financials, the sector that had been the most beaten up during previous weeks, were the main driving force, also reflecting news that Italy could lower its budget deficit target in order to avoid disciplinary procedures from Brussels.

More good news was to come for beleaguered stocks on Wednesday, on the back of comments from Federal Reserve Chair Jerome Powell, that interest rates were “just below” neutral, which propelled Wall Street higher on Wednesday. With Mr Powell indicating that there may not be the need to raise rates too many times next year, the US dollar naturally retreated, allowing emerging market and commodity indices to trace their way higher. The mining and oil-heavy FTSE 100 also rejoiced, bouncing in early trade before facing renewed selling.

Stoking investor unease towards domestic stocks was Bank of England Governor, Mark Carney, warning this week that Britain risks suffering an even bigger hit to its economy than during the global financial crisis ten years ago if it leaves the EU without a deal. “Our job is not to hope for the best but to prepare for the worst”, the man on Threadneedle Street said.

G20: US-China talks to resume

Behind all the happenings of the past week lurked the prospect, as it has done all year, of US-China trade wars. Talks between US President Donald Trump and Chinese Premier XI Jinping are due to resume over the weekend at the G20 meeting in Buenos Aires. Word is, it takes two to tango in Argentina, but little is expected from the leaders of the world’s largest economies when it comes to conceding ground. With markets ebbing and flowing on mixed news before the conference, investors trod lightly towards the end of the week, with Friday seeing muted trading on most markets.

Adding to fears that US trade tariffs were already starting to have their desired effect, worrying data came from China on Friday. It highlighted sluggish growth in their vast manufacturing sector, which was shown to stall this month for the first time in more than two years.

With events at this weekend’s G20 meeting potentially setting the tone for the week to come, investors will keep a close eye on events in Buenos Aires as leaders of the world’s 20 largest economies convene to discuss a range of political and economic objectives. Although there will be finance ministers and central bankers at the summit, it will be the arrival of the leaders of China and the USA that will gather the lion’s share of attention.

Underpinning the majority of the uncertainty felt in the markets this year has been a burgeoning trade war between the world’s two largest economies. With little signs of the tensions easing, President Trump and President Jinping will be together for a photo opportunity, if nothing else, with hope rather than expectation that either will extend an olive branch.

Whilst tensions simmer on the global stage, on a domestic level, feelings are no less fraught. Having heard Bank of England Governor, Mark Carney’s, stark warning on a “no deal Brexit” last week, many will be looking towards Threadneedle Street again this week. This time Carney’s right hand man and the bank’s chief economist will speak at a seminar in Cambridge. As a member of the Monetary Policy Committee, Andrew Haldane’s words on the domestic economy carry particular weight and should have an amplified impact on currency markets, especially as the Brexit deadline nears.

Large waves in the currency market could be felt towards the end of the week as well, this time with the US dollar in focus. The first Friday of the month signals the release of Non-Farm Payroll data in the US, the primary focus of the US Federal Reserve when they formulate future rate policy. With Jerome Powell, the Chair of the Fed, signalling that there may not be the need to raise rates as aggressively next year as once thought, the data will make for fascinating reading for analysts who will gain a better insight into the underlying strength of the US economy.